The Organization for Economic Co-operation and Development (OECD)

Respond to DISCUSIION below by: • Ask a probing question. • Share an insight from having read the discussion. • Offer and support an opinion. • Validate an idea with your own experience. •

DISCUSSION.

In accordance with provided by UK Committee on the Financial Aspects of Corporate Governance: “Corporate governance is the system by which companies are directed and controlled” (Cadbury Committee 1992,). The significance of corporate governance for the stability and equity of society is captured in the following broader definition of the concept: Corporate governance is concerned with holding the balance between economic and social goals and between individual and communal goals. The governance framework is there to encourage the efficient use of resources and equally to require accountability for the stewardship of those resources. The aim is to align as nearly as possible the interests of individuals, corporations and society. (Cadbury 2000, 4)[i].

The Organization for Economic Co-operation and Development (OECD) proposed a broader and more responsible definition and purpose of corporate governance when it first published the OECD Principles of Corporate Governance: A good corporate governance regime helps to assure that corporations use their capital efficiently. Good corporate governance helps, too, to ensure that corporations take into account the interests of a wide range of constituencies, as well as of the communities in which they operate, and that their boards are accountable to the company and to the shareholders. This, in turn, helps to assure that corporations operate for the benefit of society as a whole. It helps to maintain the confidence of investors—both foreign and domestic—and to attract more “patient” long term capital[ii].

The Anglo-American approach to corporate governance is the transformation of corporate governance firmly associated with market-based institutions, in Europe more managerial forms of governance have continued, and in Asia strong elements of family ownership have survived intact (ICGN 2014)[iii].

There is a distinction between two aspects of corporate governance: The first set of definitions concerns itself with a set of behavioral patterns: that is, the actual behavior of corporations, in terms of such measures as performance, efficiency, growth, financial structure, and treatment of shareholders and other stakeholders. The second set concerns itself with the normative framework: that is, the rules under which firms are operating—with the rules coming from such sources as the legal system, the judicial system, financial markets, and factor (labor) markets[iv].

All systems of corporate governance have serious weaknesses as well as strengths, and this includes the Anglo-American system, which has been at the epicenter of major corporate governance collapses in the twenty-first century, including the global financial crisis. European and Asia-Pacific governance systems demonstrate strengths and weaknesses too. While economic growth has slowed in Europe, the more inclusive and responsible system of corporate governance practiced there has often maintained more cohesive economies and societies. In the Asia Pacific, and throughout the more dynamic emerging markets, despite ostensibly weaker corporate governance systems, high rates of economic growth have been consistently sustained[v].

Researchers have made a distinction between convergence in form and convergence in function (Gilson, 2004). Convergence in form relates to increasing similarity in terms of legal framework and institutions. Convergence in function suggests that different countries may have different rules and institutions but may still be able to perform the same function such as ensuring fair disclosure or accountability by managers[vi].

There is a question can product market integration have an effect on governance similar to financial market integration? The opinion on this issue is somewhat divided, but proponents of convergence argue that, in the long run, product market integration and the resulting global competition will have the same effect (Khanna and Palepu, 2004)[vii]. Corporate governance is viewed as a technology or a new innovation, and in an era of global competition firms have no alternative but to adopt the most innovative practice or face competitive failure. Focusing on the patterns of diversification strategies across industries, Kogut, Walker and Anand (2002) present an argument that technological and market forces compel firms to adopt similar strategies across countries. In a similar vein, different governance systems are seen as engaged in Darwinian competition (Kester, 1997). Nations and firms that are following suboptimal governance systems will be less efficient and will fail or will have to adopt the more efficient governance system. In either case, the result is convergence[viii].

Tightening corporate governance means explicitly increased MNC compliance with specific standards and practices recommended in national and international governance codes and guidelines. Tightening involves reducing entrenchment and discretion of top managements and governing boards and increasing both formal and willing compliance of executives and directors with internal and external governance codes and guidelines[ix]. Complying with best governance prescriptions should be a source of competitive advantage such that no MNC can afford to fall too far behind in the adoption of best governance prescriptions.

Increasing regulatory pressures are driven by the series of company scandals and industry and financial crises since the 1980s. In the wake of recent corporate scandals (Harris, 2008) in various countries, U.S. stock exchanges strengthened listing requirements. Scandals destroyed the reputation capital of the corporate sector (Fombrun, 2006), and precipitated the Sarbanes–Oxley Act of 2002 (SOX)[x]. The EU nations have experienced since the 1990s strong pressures for more effective governance along U.S. and U.K. lines (Perry and Rehman, 2006).

Sample Solution

In January 2010, John began to get demands for his T-shirts from individuals outside of his family. Without giving it much idea, John joyfully obliged and printed T-shirts for these individuals. He got $25 per T-shirt and sold around 20 T-shirts in the accompanying 2 months. John dependably took the cash for the T-shirt when the demand was gotten and he guaranteed conveyance inside 5 business days. John was quick to make additional salary to supplement his modeler wage, so on 1 March 2010, he chose to explore into whether it is beneficial to offer the T-shirts to a more extensive market. He did some benefit projections, directed some exploration into to what extent the gear by and large keeps going and enquired into whether he could get his materials, (for example, paint and T-shirts) at discount cost. Because of his examinations, on 6 March 2010, John contributed $2,000 to buy some extra gear and materials, (for example, a vast drying rack for the T-shirts, an extensive amount of paint, T-shirts and another printing screen). Other than the drying rack and the printing screen, John did not require some other gear for printing the T-shirts. John likewise began to give more opportunity to planning and printing the T-shirts before he got demands, so he could take care of the demand inside the 5 business days of installment as he generally guaranteed. Throughout the period of March, John sold 30 T-shirts just by listening in on others' conversations. On 31 March 2010, John chose that in the event that he needed to offer the T-shirts to a more extensive market then he expected to publicize his item. On this date, John paid a companion $500 to set up a straightforward site to publicize his T-shirts. John additionally printed the site on the majority of the T-shirts that he sold from that date on. The site turned out to be well known and John sold 80 T-shirts amid the period of April 2010. Because of the expanded deals, John was presently spending around 35 hours for each week on printing the T-shirts. He additionally initiated a documenting arrangement of the greater part of the plans, logos and mottos that he had created. He explored into what kind of outlines were the present mold in various age bunches with the goal that he could focus on his plans to the most lucrative market. Out of the blue, in May 2010, John began to likewise configuration pants and caught shirts, which he paid to have tailor-made and connected his prints to. On 15 May 2010, the proprietor of a chain of bistros, Ron, reached John and asked for him to plan a uniform for the bistro staff. John effectively outlined a uniform, which Ron was uncommonly satisfied with. And in addition looking present day and awesome, it was likewise extremely viable. As a major aspect of the uniform, John had planned the smock with an uncommon belt, which could hold different connections, for example, the electronic requesting cushion, a fabric and different things. Ron requested 200 regalia for the greater part of the staff over the majority of the bistro establishments. Because of the accomplishment of the uniform, John chose to apply for a patent over the cook's garment with the belt. The uniform and belt was protected on 2 July 2010. In applying for the patent, John wound up mindful of a patent over a programmed garments collapsing machine being sold at a deal cost. The vender was in monetary challenges and consequently was offering it at a modest cost. John did some exploration into the potential wage that could be produced from this patent and the prevalence of the machine. Despite the fact that John had never had any involvement with such a machine, he figured this may be a decent method to make a snappy benefit. John obtained the patent for $4,000 on 15 July 2010. John effectively looked to misuse the patent and in this manner figured out how to obtain 3 critical gatherings who were quick to utilize the patent to fabricate and offer these machines. This fundamentally expanded the estimation of the patent and John therefore sold the patent on 18 October 2010 for $10,000. REQUIRED John looks for your recommendation about fulfilling his wage tax assessment commitments in regard of his printing and planning exercises. Specifically, instruct John regarding the pay impose outcomes and ramifications of: John's receipts from printing T-shirts and planning garments/regalia. John offering the patent over the programmed garments collapsing machine. In giving your answers, you ought to disregard GST, you ought to give full subtle elements and reasons concerning why and when sums are assessable, and you should allude to any pertinent case law, enactment and tax collection decisions to legitimize and bolster your decisions. - - - - - - - Arrangement Different actualities and conditions of the case must be thought about in the moment case with a specific end goal to find out the duty liabilities and the availability of different receipts of cash by John over the significant bookkeeping year. Keeping in mind the end goal to render appropriate lawful counsel to John, every one of these elements must be thought about and as needs be, a concise exchange of significant actualities as ascertainable from the certainties of the case has been attempted hereunder with the goal that right guidance can be given to John in regards to his risk relating to receipt from painting and planning T shirts and in regards to the obligation from buy and offer of licenses. As the bookkeeping year in the Commonwealth of Australia is from July 1 to June 30th of the following year, with the end goal of expense availability, figures and receipts amid the applicable time in 2009-2010 must be thought about. An examination of the actualities of the case reveals that John, who was a designer by calling, worked in a little firm in Melbourne in low maintenance work. The actualities additionally uncover that John was acquainted with the side interest of planning and printing T shirts in the long stretch of August, 2009 by a companion and he began to outline T shirts, print them and keep them for individual utilize or to blessing them to somebody. According to the realities of the case, till the long stretch of December, John had proceeded with the whole procedure as simple diversion. Since January, according to the certainties of the case, John began getting individual requests, however there is no specify of any exertion made by John keeping in mind the end goal to request orders till now. Amid January and February of 2010 John sold around 20 T shirts however the realities still don't unveil any benefit intention on part of John. The receipts from offer of T shirts throughout the period of January and February is a measure of $ 500/. In the long stretch of March, John chose to break down and check in the event that he could seek after outlining and offering T shirts to expand his income notwithstanding the wages that he earned from his design work. As his examinations were reflecting positive outcomes, he contributed $ 2,000 to buy certain things, for example, vast drying rack, paints, T shirts and a printing screen despite the fact that the prompt need was of drying rack and printing screen and John probably acquired paints and T shirts on the grounds that possibly he showed signs of improvement bargain. In the long stretch of March, John sold 30 T shirts making his receipts for the month to be $ 750. On 31st March he chose to build up a site and put $ 500 in such manner and this brought about expanded deal as he sold 80 T shirts in the period of April, 2010 consequently his receipts being $ 2000. In the long stretch of May John got request of planning 200 outfits for the bistros claimed by Ron and the overskirts outlined by John turned out to be popular to the point that he chose to patent the cook's garments with uncommon belt. In addition, John began recording every one of his plans, logos and trademarks that he created. It is submitted here that wages that John earned, being a designer, would shape a piece of his customary salary and would likewise go under the domain of statutory wage too. The vital inquiry which emerges in the moment case is whether the receipts made by John concerning printing and outlining T shirts would turn into a piece of his assessable wage or not. For whatever length of time that John was printing and planning T shirts as a piece of his leisure activity, the pay collected out of his quest for his side interest would not turn into a piece of his assessable salary. In the point of interest governing in the event of Stone1 wherein it has been plainly held that cash or advantages accumulated or got in quest for leisure activity or diversion don't turn into a piece of the assessable income2 of the assessee. In such manner, appropriately, it is presented that the cash got to the tune of $ 500 by offer of 20 T shirts by John amid the long stretch of January and February 2010 would not be dealt with as a piece of his assessable pay as he had gotten the cash in the quest for his pastime of printing and planning T shirts. It is additionally presented that for an activity to be detectable as business instead of be a leisure activity, there ought to be a desire and acknowledgment of repetitive and general income,3 there ought to be efficient arranging and there ought to be speculation relating to the activity in order to raise profit4 from the exercise.5 Accordingly, as John attempted research and put cash to acquire hardware in the long stretch of March and after that later on he contributed cash to build up a site, it unmistakably demonstrates that he planned to utilize his gifts of outlining and printing T shirts for collecting wage and from that point the cash earned by him by offer of T shirts and outfits from the period of March 2010 would frame a piece of the assessable salary of John. Another pertinent factor to be considered is that in the once he chose to take printing and planning T shirts professionally with benefit thought process, he used to work around 35 hours per week and it adds up to fulltime work making the receipts thereof to be assessable. It is additionally presented that the cash contributed with a motivation behind increasing assessable wage is permitted as deduction6 by temperance of area 8 of the Income Tax Assessment Act, 1997. In such manner, it is presented that regarding apparatus, i.e. drying rack and printing screen, John would be qualified to get devaluation and not reasoning. In like manner, John is prompted that the receipts made by him from offer of T shirts>